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When Finance Minister Arun Jaitley rejected the legitimacy of cryptocurrencies in his Union Budget speech, Indian mainstream media and some of the virtual currency holders went into panic mode listening to the first part of the speech wherein he stated, “government does not recognize cryptocurrency as legal tender,” while very few paid attention to the choice of words used in the second part of the speech.

He said the government will take all steps to eliminate the use of crypto 'assets' in financing illegitimate activities or as part of the payments system.

Days after, Subhash Chandra Garg, Secretary, Department Of Economic Affairs, during a television interview clarified Jaitley's comments and said that an in-house panel is evaluating crypto as an asset and examining its trading in unregulated exchanges. The panel will present its findings by end of the financial year 2018.

Now, that the government has cleared its standpoint loud and clear, the next question is – what is going to be the nature of upcoming crypto assets regulations and who will regulate it?

A Mature Move

People who are not a part of the crypto trade and related development space have failed to realize the penetration of the product in India. According to sources, there are about 5 million people in India transacting in cryptocurrencies. The number might not seem that significant to a country with a population of over 130 million. But are we comparing it with the right benchmark is the question worth asking, says Ajeet Khurana, Head of Blockchain Cryptocurrency Committee, IAMAI.

He adds, “One needs to compare it to the number of people trading through mutual funds or number of Demat accounts in the country. By regulating cryptocurrencies, the government can bring in more people under the tax ambit.”

The committee is glad that the government has appreciated the depth of this market and shown a lot of maturity by not banning crypto, which very few countries in the world such as Bangladesh, Nepal, Ecuador, Bolivia etc. have done. Globally, markets like the US, UK, Singapore, Italy, Switzerland, etc. have already come up with some sort of guidelines, if not an elaborative framework.

Let’s Talk Innovation

Khurana feels the sentiment behind the framework should be enabling financial innovation, having said that, he also agrees to the risks involved in this sphere.

“The government should issue guidelines for a financial institution, like banks or NBFCs, exchanges, digital wallets, on who can participate and how should they. Additionally, they should also clarify what kind of transparency and disclosures these institutions need to make. This is how the industry will tow in line,” he shared.

Vishal Gupta, CEO, Search Trade highlighted that one should not forget the nature of the entire market is international and not specific to India. So, for example, Bitcoin’s prices will not just be affected by what is going on India but also other countries and we have no control over the price outside our country’s jurisdiction.

“The initial discussion should revolve around allowing the trading activity and then the government can consider venturing into deeper issues like how to manage ICOs within the Indian context,” he noted.

Not a Regular Asset Class

When it comes to cryptocurrencies, it is not just like any other assets. For example, during the ICO stage, it can be viewed as securities but at the same time, when people are buying and selling it, it can look like a commodity.

Khurana maintains that “Every time a new asset emerges, the market expects a new regulator because it has unique features. Having said that, it is also irrational to have too many regulators in place.” Khurana opines there might be an amendment or change in the existing regulations, which allows a regulatory body to regulate it.

Since the government is approaching currencies as an asset class; one can only expect Securities Exchange Board of India (SEBI) to regulate it, if not an independent authority. But to understand how this approach will work out, one will have to just wait and watch.